As Benefits Increase, Wage Gains Stagnate

It is one reason why the improving economy has not increased salaries

An FKD Feature exclusive

According to The New York Times, “The average worker received 32 percent of total compensation in benefits including bonuses, paid leave and company contributions to insurance and retirement plans in the second quarter of 2018.” This is up from 27 percent in the year 2000,according to federal data.

What’s going on?

Wages have grown more slowly than the economy in the wake of the 2008 financial crisis, and any gains made in recent months have been offset by growing inflation. Between August 2017 and August 2018, the most recent available data, average hourly wages increased by 2.9 percent, but after adjusting for inflation, the increase was just 0.2 percent, according to the Labor Department’s flagship survey.

And even including non-wage benefits, wage gain growth is very slow by historical standards.

Some economists are arguing that the slow wage growth is indicative of a still-plentiful applicant pool (despite the low unemployment rate at 3.9 percent). These economists argue that despite the low unemployment rate, there is an abnormally large number of working-age adults who are neither working nor looking for work.

Non-wage benefits

In the September edition of its “beige book” survey of economic conditions, the central bank has noted the growing trend of non-wage compensation. For instance, Best Buy, the electronics retailer, began in July to offer four weeks of paid time off to its employees, including part-time workers, to take care of family members.

Another example is The Boyd Group, an auto repair company that operates in the United States as Gerber Collision & Glass. They plan to spend $4.5 million this year to extend their benefits to things like paid vacation and greater contributions to employees’ 401(k) accounts.

Are workers being cheated?

The White House Council of Economic Advisors argued this month that total economic well-being of employees should be measured not just by wage earnings but by total compensation instead. Michelle Meyer, an economist at Bank of America, agreed. She said that it made sense to use broader measures. “I think it goes back to the idea of whether our old models are as valuable as they once were,” she told The New York Times. “The story changes over time, and I do think the fact that there are other ways of being compensated means that simply looking at average hourly earnings is not going to be a comprehensive measure of how the economy is responding to tightness in the labor market.”

Companies, in recent years, have kept most of the benefits of an expanding economy by sustaining higher profits and giving little back to the worker. The growing trend of benefits appears to be a marked change from that. There is longstanding evidence that workers would prefer a larger share of compensation in the form of benefits. Unionized workers, who have greater leverage to negotiate the mix of wages and benefits, have long used that power to insist on better benefits.

Employers also prefer to offer a large share of compensation in the form of benefits, as benefits are easier to cut during an economic downturn.

Are all workers happy?

It appears that not all workers across the board are receiving large compensatory increases, whether that be from wage gains or perks. For the median worker, benefit compensation has increased by only 5 percent. “When I talk with blue-collar or service workers, they’re generally pretty unhappy about wage stagnation and about inadequate benefits,” Jared Bernstein, an economist at the Center on Budget and Policy Priorities told The New York Times.

Further benefits

Studies have shown that the most highly valued benefit was paid time off. The Society for Human Resource Management, which conducts an annual survey of the benefits offered by more than 3,500 corporations, found that the share of participants offering paid maternity leave increased to 35 percent in 2018 from 26 percent in 2016. Additionally, the number of employers offering paid leave to fathers, adoptive parents and surrogate parents has significantly increased.

In February, Lowe’s became the last company among the nation’s 20 largest employers to offer paid parental leave to its salaried and full-time hourly employees. The company now pays for mothers to take 10 weeks of leave and for fathers to take two weeks off.

Takeaway

Perhaps the stagnation in wage gains is more complicated than it seems. It does appear that employees tend to prefer benefits to greater salaries. Having said that, it also appears that many workers are not seeing many benefits being offered them. But still, it might be that benefit-compensation over wage gains is the way of the future. And some analysts expect the shift toward nonwage compensation to continue as the millennial generation replaces the baby boomers in the workforce.

Have something to add to this story? Comment below or join the discussion on Facebook.